Helping business owners navigate the changing regulatory landscape around retirement plans

Natalie G. McIntosh, CFP® |

California business owners are facing a new reality as the state has joined others in a move to expand retirement plan coverage for workers. The CalSavers Act mandates that all businesses with 5 or more employees offer employer-sponsored retirement plans for their workers. The mandate came into effect on September 30, 2020 (for businesses with over 100 employees) and will require compliance from all medium-sized and small businesses in California through June 30, 2022: 

Number of employees 

Deadline to offer retirement plan 

Greater than 100 

September 30, 2020 

51 – 100 

June 30, 2021 

5 – 50 

June 30, 2022 

The law is designed to ensure that California workers have a path to financial security in retirement. To assist employers in the implementation of the law, the state is offering the CalSavers Retirement Savings Program. This voluntary program offers an avenue to compliance for employers; however, CalSavers comes with some significant limitations. For example, the program uses Roth IRAs, which are after-tax vehicles with minimal annual contribution limits (currently $6,000 for employees under the age of 50) and strict income-based eligibility restrictions. In addition, CalSavers does not allow for flexibility in constructing a custom retirement plan solution for your employees (e.g. employer matching, profit-sharing). 

Fortunately, employers are not required to use the state-sponsored retirement program and can instead choose a solution that might better fit the needs of the company. Establishing a 401(k) plan can be an attractive option for business owners for a variety of reasons: 

  • Higher annual contribution limits (currently $19,500) 

  • Ability to add employer matching and profit-sharing features 

  • Up to $16,500 in total federal tax credits for the business ($5,500 for each of the first three years after plan setup) 

  • Retaining and attracting quality employees 

Setting up a 401(k) plan can provide a huge benefit for both employees and employers. Business owners have a lot of decisions to make when it comes to offering the best retirement plan solution for their employees. To find out how we can help guide you through the process, contact us to learn more about our qualified retirement plan management services.

*The information contained in this material has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of California or where otherwise legally permitted. All written content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions.